Council Investments in a Pickle

reeves Thu Oct 09, 2008 at 02:01:08 AM GMT Print-friendly version Facebook

Earlier this year I had to re-invest an ISA. I looked around the market and there were some crazily appealing deals from banks based in Iceland. Consistently the Icelandic banks were topping the league tables in newspapers best investment comparisons.



However, at the same time there were an increasing number of articles highlighting potential problems with the Icelandic economy, most of them being concerned with the massive amount of lending the banks had undertaken. Along with this was the realisation that if, for whatever reason, an Icelandic bank were to fail the mechanism to protect people's investments was far from straightforward.

So, I chose to avoid putting my very modest ISA into an Icelandic bank, despite the very attractive interest rates on offer, because it seemed just too risky.

Why is it then that my local council, Hertfordshire County Council, along with many other local councils, who I presume all use professional and very expensive financial advice, completely failed to notice these very same problems and are now stuck with over £17 million of tax payers money in accounts they cannot access?

Why is it that Eric Pickles said that “no council could have foreseen the collapse of Iceland's banks”, which would only be true if none of them had bothered to read a newspaper over the past few months?

In a quick search of newspaper stories related to 'collapse of Icelandic Banks' from the last nine months I found twenty six articles, all dated before September 2008. As some of these articles appeared in the Daily & Mail On Sunday, Mr Pickles and these local Councils really have no excuse for putting tax payers money at such phenomenal risk.



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Council Investments in a Pickle | 45 comments (45 topical)

Re: Council Investments in a Pickle (#1)

by realist on Thu Oct 09, 2008 at 09:17:52 AM GMT

"Why is it then that my local council, Hertfordshire County Council, along with many other local councils, who I presume all use professional and very expensive financial advice, completely failed to notice these very same problems and are now stuck with over £17 million of tax payers money in accounts they cannot access?"

http://www.landsbanki.co.uk/

"Landsbanki Islands hf is authorised by Fjarmalaeftirlitid in Iceland and the Financial Services Authority and is regulated by the Financial Services Authority for the conduct of UK business."

I guess some of the blame must rest with the regulators allowing the bank to conduct business in the UK - just as they failed with Northern Rock, and allowed banks to engage in activities that have put the whole of the banking sector at risk and required hundreds of billions of pounds of taxpayers money to bail them out.

As can be seen, the regulator is the FSA.

The person responsible for the FSA should hang their head in shame.  What a pigs ear of a regulator they have turned out to be.

So who was responsible?

Oh yes, it was Gordon Brown, the man that set up the FSA, then just a few years ago was calling for a light touch regulation system, in the belief that the idea that businesses would act irresponsibly was a throwback to Victorian times.

Gordon Browns Better Regulation action plan - a Treasury Press Release!

http://62.164.176.164/press_5005.htm

How irresponsible.

As he now states, those responsible for irresponsible behaviour should pay the penalty...

 

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Re: Council Investments in a Pickle (#3)

by rwendland on Thu Oct 09, 2008 at 10:15:19 AM GMT

> I guess some of the blame must rest with the regulators allowing the bank to conduct business in the UK

Apparently because Iceland is in the EEA, the rules are that we had no option but let them operate.

Westminster was on C4 News last night. Their money is spread around a number of banks on 3 to 6 month terms - 5% was in Iceland banks on the basis of professional advice. Dumb, but not as stupid as it first sounds.


[ Parent ]

Re: Council Investments in a Pickle (#26)

by adwilliams134 on Fri Oct 10, 2008 at 07:55:35 AM GMT

And who is responsible for supervising the FSA and ensuring that they carry out their job properly?


[ Parent ]

Re: Council Investments in a Pickle (#2)

by reeves on Thu Oct 09, 2008 at 10:05:20 AM GMT

In “realist's” world it's not the investor's fault, or the fault of the bank, but it's the fault of Gordon Brown because he's the leader of the government that created a regulator that actually did its job (in this case); a regulator that wasn't being 'statist' enough?

In what possible sense is this the regulators fault? It was made crystal clear that the investment was covered up to £35,000. At what point did the all the Councils involved in this become dribbling morons incapable of making independent decisions based on evidence and fact?

All investments involve a degree of risk, but my point was that these councils have been extraordinarily cavalier with my Council Tax money when the warning signs were absolutely clear to anyone who chose to look.


Re: Council Investments in a Pickle (#4)

by madasafish on Thu Oct 09, 2008 at 11:18:17 AM GMT

Frankly in the real world .. the Heads of Finance would be fired.

That would ensure future Heads would be more careful - with taxpayers' money.
BCCI did it before... so no lessons learned.

As for anyone relying on the FSA, they are 100% proven useless and a waste of time and money.
ANYONE who relies on an FSA Approved sticker... is an idiot.. and should have done due diligence.

I did it months ago on Icelandic Banks.. and it took about 10 minutes to see what was likely to happen.

So fire the Finance Heads...and make them contribute personally to the lost funds..

No central Government help either.. bailing out professional incompetence...


[ Parent ]

Re: Council Investments in a Pickle (#5)

by snowflake5 on Thu Oct 09, 2008 at 02:24:53 PM GMT

I would imagine the Heads of Finance took professional advice and can sue (and if they didn't take advice, why not?) And yes, councils should do due diligence of their own and not rely on credit ratings. And yes, of the Heads of Finance are being paid six figure sums, they should be fired (if you pay that much you expect some value).

These are all Tory councils in trouble, arn't they? Shakes head. Too much emphasis on return and not enough on risk. But then again, you can blame their voters, who don't want to pay council tax but instead want money for services to be "earned" from high-return investments.


However, some good news - the Labour government has used anti-terror laws to seize British money from the Icelandic banks. I knew there was some point to the anti-terror laws - it's so that the Labour government can protect citizens from foolish Tory councillors. ;-)


[ Parent ]

Re: Council Investments in a Pickle (#7)

by Floating voter on Thu Oct 09, 2008 at 04:31:26 PM GMT

"you can blame their voters,"

Oh yes - it's all the voters' fault for not returning Labour councils, the silly idiots. Snowpaque, you may live in a fantasy wonderland but the rest of us live in a democracy. The voters, by definition, return the right result every time. The voters' representatives were given advice by Central govt and followed it.

 
"However, some good news - the Labour government has used anti-terror laws to seize British money from the Icelandic banks. I knew there was some point to the anti-terror laws - it's so that the Labour government can protect citizens from foolish Tory councillors. ;-)"

Eh? This is *good* news? That our anti-terror laws are so well framed that they can be used for financial recovery when there is absolutely no terrorist involvement? Or can we expect the invasion of Iceland any day soon?

 


[ Parent ]

Re: Council Investments in a Pickle (#8)

by snowflake5 on Thu Oct 09, 2008 at 04:45:28 PM GMT

The voters' representatives were given advice by Central govt and followed it

The only "advice" central government gave was to put the money in a safe place. The councils had complete discretion to choose where. They could have chosen HSBC, or LLoyds or the Nationwide - but they chose Icesave. And now they are trying to pretend that central government "made" them choose Icesave. No, they chose that bank themselves, because they were trying to earn high returns to save on council tax rises. They need to accept responsibility for their decisions, instead of bleating. What on earth is the point of electing a local representative if they expect the Treasury to make every single decision for them?

BTW, if Osborne's daft plans to curb council spending comes in, expect more and more councils to make risky investment decisions as they try to square the circle.

As for voters - in democracies, the buck stops with the voter. You get the representatives you deserve - if you have deliberately voted for a Tory councillor who has promised to cut your council tax, you shouldn't be at all surprised that he has taken risky decisions to achieve what you the voter have demanded. 


[ Parent ]

Re: Council Investments in a Pickle (#13)

by Floating voter on Thu Oct 09, 2008 at 06:58:36 PM GMT

"but they chose Icesave"

Which had a AA credit rating. In addition, you might be interested in letting the government know that it clearly has not got a clue. "Local authorities have not been "reckless" in investing more than £720m with failed Icelandic banks, the government has said.". Tell Gordon he needs to talk YOU to find out what is going on.

http://news.bbc.co.uk/1/hi/uk_politics/7660438.stm

By the way, you said in an earlier comment "These are all Tory councils in trouble, arn't they? Shakes head.". More Snowpaque spin unless Brent, Hackney, Barking, Nottingham, Doncaster, ... well you get the idea, and that is not the full list of non-tory councils, just the ones I know are Labour or Lib Dem (Cambridge)

" if you have deliberately voted for a Tory councillor who has promised to cut your council tax"

There is more to voting than just Council Tax. Bin collections spring to mind as do other local services.


[ Parent ]

Re: Council Investments in a Pickle (#18)

by snowflake5 on Thu Oct 09, 2008 at 10:12:20 PM GMT

Which had a AA credit rating.

Which is provided credit rating agencies, not, as you were pretending, by the government. I'm sure you are aware that credit rating agencies are independent and private, and not arms of government.
 
Your allegation that the councils affected were "advised" directly by central government to invest in Icesave is False. The only guidance goven by government was to place the money somewhere safe. I'm pretty certain you knew that anyway, but decided it was more fun to try to make stuff up and blame the government. 

Re Gordon Brown's comments - he is clearly a very kind and generous man in not pointing out that councils need to take responsibility for their decisions.

Re the responsibilities of voters - most who vote Tory, do so to cut council tax. Some may vote deciding they want lower council tax and weekly bin collections (which increase expenditure),  -  and hence they increase the pressure on the people they elected to go for dubious high-return investments to make up shortfalls. And when it blows up, it's down to the voter for being so silly in their demands. In democracies, the buck stops with the voter.


[ Parent ]

Re: Council Investments in a Pickle (#45)

by adwilliams134 on Fri Oct 17, 2008 at 11:36:48 PM GMT

In the house of lords,  a spokesman for the government in reply to a  written question by the LibDems said Iceland was a pretty cool place to shove money.

You can either trust what the government says or you can't

Which is it?


[ Parent ]

Re: Council Investments in a Pickle (#35)

by DevonChap on Fri Oct 10, 2008 at 07:58:45 PM GMT

I hope you are being ironic that it is good news the government used anti-terror laws. It is quite appauling and I'm seething with rage. It shows they can be trusted when they put these things through, see REPA act for a similar pervesion. How soon before 28 Days detention is used for non terror cases.

Britain is bulling a country 20 smaller i population that has undergone economic collapse for the sake of local authorities who should have known better. We should be holding our heads in shame over this.


[ Parent ]

Re: Council Investments in a Pickle (#6)

by AngryVoter on Thu Oct 09, 2008 at 02:53:23 PM GMT

It seems the "foolish Tory Councils" [and the Met, and several non-party run police forces, and several transport divisions such as TFL, which is run by a Labour-leaning head] Invested this money, according to the BBC news at lunchtime "On the advice of central government advisors." It seems to me this was a set of councils that had invested in the fairly long-term from the advice of a number of financial professionals and the shockwave of the whole situation has caught them off-guard.

Much like a lot of the current financial crisis the FSA has once again proven itself woefully inadequate in it's exectution of regulating this problem.

The quicker this incompetent and blatantly useless quango is abolished and the powers given to the Bank of England [where there are still competent economists at work, unlike in the treasury, the NEC and in the cabinet as a whole] the ruddy better!


Re: Council Investments in a Pickle (#9)

by madasafish on Thu Oct 09, 2008 at 05:11:55 PM GMT

I'm sorry but much of the debate is wrong.
Elected officials do NOT - or should not decide where to deposit money. That is the job of the Finance Head.

Rule 1 to 9 in saving money is to put it in safe hands.

All savings should be monitored regularly. The Icelandic issue has been news for months..

The FSA ? As I said above, rely on the FSA and you get broken banks , unchecked insider trading and a profusion of companies joining the AIM market which should never have joined.

The FSA manage to make the FA look modern, efficient, well run and on top of their game... a measure of how bad the FSA are..

Just wait for the next banks to go pop.. which they will do..

And by the way all this bank Liquidity stuff is a smokescreen in my opinion. By normal accounting standards most UK major banks are effectively insolvent due to lack of ability for loans to be repaid..

And the FSA lets them go merrily on  and does nothing... Save money . Close the FSA down....




[ Parent ]

Re: Council Investments in a Pickle (#12)

by rwendland on Thu Oct 09, 2008 at 06:10:29 PM GMT

The beeb have a long list of the councils here. The £20+ million part of the list is:

  • Kent County Council - £50 million
  • Nottingham City Council - £42 million
  • Norfolk County Council - £32.5 million
  • Dorset County Council - £28.1 million
  • Hertfordshire - £28 million
  • Somerset County Council - £25 million
  • Northumberland County Council - £23 million
  • Surrey County Council - £20 million
  • Hillingdon Council - £20 million
  • Neath Port Talbot Council - £20 million
  • Barnet Council- £27 million
  • Transport For London - £40 million
  • Metropolitan Police - £30 million

These do seem nearly all Tory - is Neath Port Talbot (Labour) the only non-Tory?


[ Parent ]

Re: Council Investments in a Pickle (#14)

by Floating voter on Thu Oct 09, 2008 at 07:02:54 PM GMT

"These do seem nearly all Tory - is Neath Port Talbot (Labour) the only non-Tory?"

There are not that many Labour councils left.

Besides, the question you should be asking is "Who was in control of the council when the investment was made?". If the the tories gained control in 2007 (which was a landslide year for them) and the investment in the Iceland bank was made in (say) 2006 then.... well, you get the point.


[ Parent ]

Re: Council Investments in a Pickle (#15)

by AngryVoter on Thu Oct 09, 2008 at 08:11:02 PM GMT

I just realised how amusing this whole thing is, and how short people's memories are [including my own!]

The amount invested definitely suggests a more long-term investment, which a number of those councils, who were previously Labour dominated, had done over a period of several years, not within the last 4 months.

So the blame seems to shift back to Labour in that regard, but us Tories cannot fully escape the blame, we're meant to be better at fiscal responsibility than you guys and we still managed to drop the ball.

But yes, as FV says, there's next to none left simply because the voters still don't trust you. 


[ Parent ]

Re: Council Investments in a Pickle (#16)

by Floating voter on Thu Oct 09, 2008 at 09:04:21 PM GMT

"how short people's memories are.....a number of those councils, who were previously Labour dominated, had done over a period of several years, not within the last 4 months."

Indeed, but remember that the biggest part of the tory landslide was May 2007 - 16 months ago. In spite of that the point still stands, a significant number of the councils involved are Labour, probably more were Labour and goodly fraction - about 1/6th - of the institutions are apolitical.

So there is enough blame to go round, but those trying to heap it exclusively on to tory shoulders so as to score cheap political points are simply making an a** of themselves.


[ Parent ]

Re: Council Investments in a Pickle (#20)

by snowflake5 on Thu Oct 09, 2008 at 10:21:43 PM GMT

The amount invested definitely suggests a more long-term investment, which a number of those councils, who were previously Labour dominated, had done over a period of several years, not within the last 4 months.

So the blame seems to shift back to Labour in that regard, but us Tories cannot fully escape the blame, we're meant to be better at fiscal responsibility than you guys and we still managed to drop the ball.

LOL. Most of those councils have been Tory for a long time. The last time Labour held most of the councils was 1997. Since 2003, Tories have held the most. 2003 was five years ago, not 4 months ago. And I don't think Westminster have ever been held by Labour.


The other point is that Icesave were only launched in the UK in 2006. These "long-term" investments were only made within the last two years - in a period where Tories have been controlling most councils.

But nice try at passing the buck! 


[ Parent ]

Re: Council Investments in a Pickle (#44)

by LabourStill on Fri Oct 17, 2008 at 09:11:46 PM GMT

Nottingham City Council is Labour controlled - they even increased their (large) majority last year.


[ Parent ]

Re: Council Investments in a Pickle (#10)

by NB on Thu Oct 09, 2008 at 05:33:16 PM GMT

Because of the EEA the FSA didn't really have much of a role. The problem for Local Authorities is that they are tied up with so much red tape and "guidance" that it's difficult for them to use discretion. 

You and I can say "looks a bit too good to be true" but a Local Authority Treasurer with a Statutory Duty to maximise returns subject to risk and faced with the AAA Credit Ratings may have felt they had little choice but to put some of their money there.


Re: Council Investments in a Pickle (#11)

by madasafish on Thu Oct 09, 2008 at 06:05:04 PM GMT

may have felt they had little choice but to put some of their money there.

All I can say is:
1. The return on lost money is -100%

2. Your argument is fallacious. If it was true, how come only a minority of Councils used Icelandic banks?
Were the others inncompetent by not getting higher rates.or rather smart?

3. If it looks too good to be true, there IS a catch. Icelandic banks offered better rates.. Just like BCCI...










[ Parent ]

Re: Council Investments in a Pickle (#21)

by snowflake5 on Thu Oct 09, 2008 at 10:22:18 PM GMT

Spot on


[ Parent ]

Re: Council Investments in a Pickle (#23)

by NB on Fri Oct 10, 2008 at 05:43:49 AM GMT

We don't know how many used Icelandic banks - we only know who was caught when the music stopped. As other commentators have pointed out, some of these may have been term deposits. 

My basic point though remains - "common sense" and "gut feeling" are just fine when it's your money - but with a zillion directives and targets from Central Govt it is not so easy as a local govt official. Note that I said "may have felt they had little choice" not "would have had no choice"


[ Parent ]

Re: Pickle Jar is empty as is head (#17)

by john frost on Thu Oct 09, 2008 at 09:45:46 PM GMT

"There was an old woman who lived in a shoe,
She had so many children she did not know what to do"
When some of them were ill she gave them medicine. When they were all ill she took the medicine herself."

The facts are for the benefit of Dale's pet poodle token Northerner  Eric Pickles Shadow LGM (see nauseating sycophantic video on Dale's site)   only two  predominantly Tory Flagship Councils seriously did not measure up when speculating with Community Charge Payers Cash in Iceland.Only 20 in the entire UK were foolish. Now come on Eric you can't tell me those toadies you Uncle Tommed yourself in to when you turned Tory after generations of Labour loyalty in your family (sic) DON'T know the financial facts of life. Your sophisto fat cat friends  of Kent and Westminster  are in the thick of the stockbroker belt with free advice and patronage coming at them everywhere for  Who are you kidding? They knew exactly what they were doing and if they didnt they should be surcharged in the absence of recovering the monies.
 


Re: Council Investments in a Pickle (#19)

by scampi on Thu Oct 09, 2008 at 10:14:37 PM GMT

I agree that Iceland has made a mess of the banking game but I really think it is incredibly inelegant for GB and AD to take such an aggressive stance against such a puny opponent. Are our finances so spent that we cannot cover them even for a time till things settle down. It makes me ashamed to be British in all seriousness. And to use anti-terror laws against a neighbour and an ally! Please.


Re: Council Investments in a Pickle (#22)

by snowflake5 on Thu Oct 09, 2008 at 10:26:17 PM GMT

The govt has to put a marker down when it comes to foreign banks who don't meet their obligations. Else a precedent is set that the UK will simply pay all compensation, and the foreign counterparty pays nothing.  


[ Parent ]

Re: Council Investments in a Pickle (#24)

by NB on Fri Oct 10, 2008 at 05:45:57 AM GMT

But the fact remains that these banks are not terrorists - and it's a classic case of this govt abusing their "anti-terror" laws. At least this appalling 42-days stuff is now dead.


[ Parent ]

Re: Council Investments in a Pickle (#25)

by adwilliams134 on Fri Oct 10, 2008 at 07:38:53 AM GMT

The government abusing anti-terror laws and using them for their own ends should quite frankly,  not anaze anyone.  Then not doing it would have been amazing.

Now to the point.   The councils etc are trying to cloud the issue by saying the Goverenment AA rated them.   That is a pathetic excuse.  It has been widely publicised since the collapse of NR that AAA rated derivatives were in fact heavily contaminated,  and the rating system was dubious.

A lot of the problems that are going on now have been caused by people in positions of authority ignoring warning signs because of greed.

By the way Gordon,  seizing the assets of bankrupted people, orgaisations, companies etc without Court permission is a criminal offence.  You are not allowed to make yourself a 'preferred creditor'


[ Parent ]

Re: Vikings still rape and pillage it seems. (#27)

by john frost on Fri Oct 10, 2008 at 10:15:54 AM GMT

Well yes but if the Brown  legal team feel it is worth a punt in the- International or European Courts then it must be and in the mean time some cash is saved from the Viking Plunderers


[ Parent ]

Re: Vikings still rape and pillage it seems. (#28)

by adwilliams134 on Fri Oct 10, 2008 at 10:24:36 AM GMT

I think Brown and his legal team knew damn well they didn't have a leg to stand on which is exactly the reason why they have misused and abused the anti-terror laws.  By using them they have got round them,  but sooner or later they will have to produce evidence of terrorism or release the assets back to the Icelandic Government and then everyone will have to take their chances with the liquidators.  At the moment,  it's just frozen and the longer it all remains frozen the longer this is going to take to sort out.

Certainly, HMG can't start liquidating their assets - it doesn't have the authority.  It has to be done by the relevant Receiver in conjunction with the relevant Court and the hierarchy of preferred creditors has to be followed.  Whether Gordon likes it or not.

About 5 years ago,  I seized & took back a stock delivery that hadn't been paid for from a client who went bankrupt.  That evening I was delivered a summons to appear before a Judge first thing the next morning.  I was ordered to return the stock to the bankrupt (even though it wasn't paid for)  within 24 hours or face 14 days for Contempt.   I was given a real good lecture frrom a representative of the Receiver all about Preferred Creditor and how very very naughty it is to make yourself one.


[ Parent ]

Re: Vikings still rape and pillage it seems. (#29)

by Floating voter on Fri Oct 10, 2008 at 10:37:41 AM GMT

"I think Brown and his legal team knew damn well they didn't have a leg to stand on which is exactly the reason why they have misused and abused the anti-terror laws."

I would not be surprised if this does not come back to haunt them. It is the best demonstration of how badly drafted the terror laws are. It also shows that this government will misuse any badly drafted law and finally kills off "If you've nothing to hide you've nothing to worry about" as an excuse 


[ Parent ]

Re: Vikings still rape and pillage it seems. (#38)

by jdc on Mon Oct 13, 2008 at 11:34:53 AM GMT

Why do people think everything is an anti-terror law?

There's no reference to terrorism in the asset freezing provisions of the Anti-Terror, Crime and Security Act. It's like saying I'm not a vegetarian because I go to the Fish and Chip shop, even if I only buy chips.

Acts of Parliament can deal with more than one thing...


[ Parent ]

Re: Vikings still rape and pillage it seems. (#39)

by adwilliams134 on Mon Oct 13, 2008 at 08:23:41 PM GMT

There's no reference to terrorism in the asset freezing provisions of the Anti-Terror, Crime and Security Act.

Well you managed it inside just one sentence.


[ Parent ]

Re: Vikings still rape and pillage it seems. (#40)

by jdc on Tue Oct 14, 2008 at 10:18:35 AM GMT

Oh for heaven's sake. That is precisely the sort of nonsense I was pointing out with my fish and chip shop examples. Let me try again.

I go to the Fish and Chip shop. I buy chips from the photocopied and laminated menu. You tell me I am being a bad vegetarian. I say "There is no reference to fish in the chip section of the fish and chip shop menu".

I am right. You are wrong. A shop call sell more than one product, an Act of Parliament can deal with more than one thing. The US Bailout bill includes a section on tax relief for manufacturers of toy bows and arrows.

Now read the section of the Act on asset-freezing, which specifically mentions actions which can be taken when foreign governments damage the economic interests of the UK, and show me where it mentions terrorism.


[ Parent ]

Re: Vikings still rape and pillage it seems. (#41)

by adwilliams134 on Tue Oct 14, 2008 at 01:11:44 PM GMT

In that case,  why is it not part of the Insolvency Act,  which is supposed to cover all things to do with Administration & Bankruptcy and has been Law for decades.

As for US Bills,  as you very well know, the US system is entirely diffeent to ours and in order to get the Bills passed will very often contain 'clip-ons' that have absolutely nothing to do with the Bill itself.


[ Parent ]

Re: Vikings still rape and pillage it seems. (#42)

by jdc on Tue Oct 14, 2008 at 01:41:27 PM GMT

Probably because this wasn't as big an issue decades ago. There is precedent for these related but non-identical issues being in the same Act, for example the Theft Act deals with both Fraud and Robbery, but it's quite easy to be a robber without being a fraudster, and indeed to be a fraudster without being a robber.


[ Parent ]

Re: Council Investments in a Pickle (#31)

by aneurin on Fri Oct 10, 2008 at 12:53:35 PM GMT

Let me explain what actually happened.

Landsbanki Islands hf opened a branch in London in January 2005 and later launched an internet based retail deposit arm under the Icesave brand in autumn 2006. The point is that when British based individuals and corporate entities deposited money with Landsbanki/Icesave, they were depositing money with the London branch of Landsbanki Islands hf, which was no different in law with depositing money with the Reykjavik branch of the same bank. However when the Icelandic government nationalised Landsbanki it took steps to ensure that all of Landsbanki's Icelandic based operations would be "open for business as usual", but left all its foreign based operations in the lurch.

In short therefore, it was the Icelandic government which was unfairly trying to give preference to the domestic based customers of Landsbanki over its British ones. Brown and Co have simply used a convenient piece of legislation to prevent the new renationalised Landsbanki from alienating its UK based assets whilst ignoring its UK based liabilities. If the Icelandic government refuses to play ball, then Brown and Co can of course just simply pass the necessary act of parliament to legitimise their actions in the same way as Icelandic government has done so.

A similar situation applies in respect of Kaupthing which also operated through a London branch. Although as it turns out its retail deposit arm Kaupthing Edge was part of Kaupthing Singer & Friedlander Limited, which is a British bank. Its retail depositors are OK, because the FSA put KSF into administration and sold the deposit book to ING. Same with Heritable Bank, which was a Landsbanki subsidiary and thus a British regulated bank, but is now in administration with its retail depositors also transfered to ING.

P.S. snowflake5 is actually right for once in her reference to "foreign banks who don't meet their obligations".


[ Parent ]

Re: Council Investments in a Pickle (#32)

by adwilliams134 on Fri Oct 10, 2008 at 01:09:54 PM GMT

Surely then that means they would have to re-write the Insolvency Act which would then allow creditors to persue Bankrupt firms and individuals before the Receiver is even involved?


[ Parent ]

Re: Council Investments in a Pickle (#36)

by aneurin on Fri Oct 10, 2008 at 08:00:36 PM GMT

I believe that it is already the intention to re-write the Insolvency Act as far as banks are concerned in the Banking Bill, but the short answer would be yes. The Icelandic government have already re-written the law to suit its own domestic political agenda, so there is no reason why we can't do the same.


[ Parent ]

Re: Council Investments in a Pickle (#30)

by NB on Fri Oct 10, 2008 at 12:22:22 PM GMT

The FT now lists over 104 councils and public sector bodies that are known to have money with Icelandic banks, and there may well be more.  Not such a tiny minority.


Re: Council Investments in a Pickle (#33)

by rwendland on Fri Oct 10, 2008 at 01:49:42 PM GMT

Read the Daily Mail this morning (sorry - only paper in MOT waiting room). They claim that the rules do not allow LAs to engage in speculative investment, but just the temporary investment of money "for a purpose in the reasonably near future", certainly less than a year. But they claim LAs are pushing this rule, and at least one LA invested in an Icelandic bank on a 2-year term.

Could an LA make a profit borrowing at interest rates only available to a LA, and lending it out elsewhere at a higher rate (presumably at higher risk)? If so, it sounds like a Tory smart-ass advisor trick.


[ Parent ]

Re: Council Investments in a Pickle (#34)

by madasafish on Fri Oct 10, 2008 at 06:00:19 PM GMT

http://news.bbc.co.uk/1/hi/uk_politics/7663596.stm

Says it all


[ Parent ]

Re: Council Investments in a Pickle (#37)

by aneurin on Fri Oct 10, 2008 at 08:05:32 PM GMT

That I believe is the smoking gun.

The answer to the question why "Hertfordshire County Council, along with many other local councils" placed money with Icelandic banks might therefore be that they relied on the assurances given by "Treasury minister Lord Davies" and "junior Treasury minister Kitty Ussher". 


[ Parent ]

"Non-specified Investments" in Iceland (#43)

by rwendland on Wed Oct 15, 2008 at 02:11:30 PM GMT

Cheltenham Borough Council's announcement says their Iceland  lending is on fixed terms over one year.  ("earliest maturity date for ... a £1 million investment to mature in December 2009", implying the rest of their £12 million is on even longer term.)

As well as showing why they couldn't pull out in recent months, under the govt regulations and guidance this is a "Non-specified Investment" under the regulations because it was for longer than 1 year. LA's are allowed to make such investments, but given the "greater potential risk" the LA is entirely responsible "to ensure that proper procedures are in place for undertaking risk assessments of investments" - i.e. simply using simple credit ratings, allowed for "Specified Investments" won't do.

So if many councils, beyond Cheltenham, had >1 year terms then their claims that  govt guidance that following Moody/Fitch ratings was adequete just seems to be spin to shift the blame.

The guidance also says "speculative procedure of borrowing purely in order to invest remains unlawful", so if any of these long term loans were speculation by LAs, officers and/or councillors might be at risk of being charged for the loss!

 Some snips from the guidance are:

 3. ... This would also
allow the temporary investment of funds borrowed for the purpose of expenditure in the
reasonably near future; however, the speculative procedure of borrowing purely in order
to invest remains unlawful.

14. The general policy objective is that local authorities should invest prudently the
surplus funds held on behalf of their communities.

15. The guidance recommends that priority should be given to security and liquidity.
However, that does not mean that authorities should ignore yield. It will be appropriate to
seek the highest rate of return consistent with the proper levels of security and liquidity.

Specified Investments

20. The idea of specified investments is to identify investments offering high security and
high liquidity. Authorities will be free to rely on these with minimal procedural formalities.
All such investments should be in sterling and with a maturity of no more than a year.
Such short-term investments made with the UK Government or a local authority or parish
council will automatically count as specified investments.

21. In addition, short-term sterling investments with bodies or investment schemes with
"high credit ratings" will count as specified investments. However, the Annual Investment
Strategy should define this term for broad categories of investment. The Strategy should
also say how frequently ratings are to be monitored and what is to happen if they change.

Non-specified Investments

22. The Annual Investment Strategy should deal in more detail with non-specified
investments, given the greater potential risk. It should identify the types of investments
that may be used during the course of the year and should set a limit to the amounts that
may be held in such investments at any time in the year. The limit may be a sum of
money or a percentage of total investments. The Strategy should also lay down
guidelines for making decisions on such investments, for example, on the circumstances
in which professional advice is to be sought.

23. There is no intention of discouraging authorities from using non-specified investments.
The aim is simply to ensure that proper procedures are in place for undertaking risk
assessments of investments made for longer periods or with bodies which are not highly
credit-rated. It is not implied that credit ratings are the only means of assessing
creditworthiness; but where an alternative or additional method is considered appropriate,
it should be summarised and explained in the Strategy.


Council Investments in a Pickle | 45 comments (45 topical)